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THE NEWS CORPORATION/DIRECTV DEAL: THE

MARRIAGE OF CONTENT AND GLOBAL DISTRIBUTION

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 18, 2003

Serial No. J–108–18

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ORRIN G. HATCH, Utah, Chairman 

CHARLES E. GRASSLEY, Iowa 

ARLEN SPECTER, Pennsylvania 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

LARRY E. CRAIG, Idaho 

SAXBY CHAMBLISS, Georgia 

JOHN CORNYN, Texas 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

JOHN EDWARDS, North Carolina 

BRUCE ARTIM, Chief Counsel and Staff Director 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

MIKE DEWINE, Ohio, Chairman 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

LINDSEY O. GRAHAM, South Carolina 

SAXBY CHAMBLISS, Georgia 

HERBERT KOHL, Wisconsin 

PATRICK J. LEAHY, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

JOHN EDWARDS, North Carolina 

PETER LEVITAS, Majority Chief Counsel and Staff Director 

JEFFREY MILLER, Democratic Chief Counsel 

(III)

C O N T E N T S

STATEMENTS OF COMMITTEE MEMBERS

Page 

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio ................................ 1

prepared statement .......................................................................................... 64

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah, prepared 

statement .............................................................................................................. 76

Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin ....................... 3

prepared statement .......................................................................................... 92

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 4

prepared statement .......................................................................................... 93

WITNESSES 

Cleland, Scott, Chief Executive Officer, Precursor Group, Washington, D.C. .... 13

Hartenstein, Eddy W., Chairman and Chief Executive Officer, DirecTV, Inc., 

Phoenix, Arizona .................................................................................................. 8

Kimmelman, Gene, Senior Director for Advocacy and Public Policy, Consumers Union, Washington, D.C. ........................................................................ 11

Miron, Robert, Chairman and Chief Executive Officer, Advance/Newhouse 

Communications, Tampa, Florida ....................................................................... 10

Murdoch, Rupert, Chairman and Chief Executive, The News Corporation, 

Ltd., New York, New York .................................................................................. 6

QUESTIONS AND ANSWERS 

Responses of Scott C. Cleland to questions submitted by Senator DeWine ....... 36

Responses of Scott C. Cleland to questions submitted by Senator Kohl ............. 38

Responses of Eddy Hartenstein to questions submitted by Senator DeWine 

and Senator Kohl ................................................................................................. 40

Responses of Robert Miron to questions submitted by Senator DeWine ............ 45

Responses of Robert Miron to questions submitted by Senator Kohl ................. 47

Responses of Rupert Murdoch to questions submitted by Senator DeWine 

and Senator Kohl ................................................................................................. 48

SUBMISSIONS FOR THE RECORD 

Cleland, Scott, Chief Executive Officer, Precursor Group, Washington, D.C., 

prepared statement .............................................................................................. 60

Hartenstein, Eddy W., Chairman and Chief Executive Officer, DirecTV, Inc., 

Phoenix, Arizona, prepared statement ............................................................... 67

Kimmelman, Gene, Senior Director for Advocacy and Public Policy, Consumers Union, Washington, D.C., prepared statement .................................... 78

Miron, Robert, Chairman and Chief Executive Officer, Advance/Newhouse 

Communications, Tampa, Florida, prepared statement and attachments ...... 95

Murdoch, Rupert, Chairman and Chief Executive, The News Corporation, 

Ltd., New York, New York, prepared statement ............................................... 153

(1)

THE NEWS CORPORATION/DIRECTV DEAL: 

THE MARRIAGE OF CONTENT AND GLOBAL 

DISTRIBUTION 

WEDNESDAY, JUNE 18, 2003 

UNITED STATES SENATE, 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY, AND

CONSUMER RIGHTS, OF THE COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:37 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Mike DeWine, 

Chairman of the Subcommittee, presiding. 

Present: Senators DeWine, Specter, Kohl, and Leahy. 

OPENING STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR 

FROM THE STATE OF OHIO 

Chairman DEWINE. Well, good afternoon and welcome to the 

Antitrust Subcommittee hearing on the proposed transaction between News Corporation and DIRECTV. 

Just 15 months ago, this Subcommittee held a hearing to examine another deal involving DIRECTV, the proposed merger between 

EchoStar and DIRECTV. Many had expressed alarm about that 

proposed merger, and ultimately the Justice Department and the 

FCC moved to block the deal. 

The News Corporation/DIRECTV deal we are examining today is 

fundamentally different, of course, from the merger that we examined 15 months ago. Unlike the prior deal, this one does not involve 

two companies that are direct competitors. Instead, News Corporation and DIRECTV compete in different markets. 

The United States, News Corporation competes primarily as a 

programmer, owning such properties as the Fox Network and cable 

networks, such as Fox News Channel and numerous regional 

sports networks. As a result of this ownership, News Corporation 

provides some of the most popular programming in the United 

States. 

DIRECTV competes as a distributor of multichannel video programming, providing direct satellite service to over 11 million subscribers. DIRECTV carries News Corporation programming, and 

other programming, to subscribers. Thus, this deal is a vertical 

deal, involving a combination between a supplier of programming, 

News Corporation, and a distributor of programming, DIRECTV. 

Vertical combinations, like this one, can potentially create efficiencies for the combining parties and benefits for consumers. 

2

Vertical deals also, however, can raise competitive concerns, 

though typically fewer and different kinds of concerns than those 

raised by deals between direct ‘‘horizontal’’ competitors. Deals such 

as this one may also raise policy concerns that do go beyond antitrust issues. 

In our hearing today, we will explore both the potential efficiencies and benefits of News Corporation’s combination with 

DIRECTV and the concerns that the deal raises. 

News Corporation and DIRECTV argue that numerous benefits 

will flow from their merger. News Corporation will bring its years 

of experience as a satellite operator in other countries and its 

record as an aggressive, innovative competitor to the American 

video marketplace. 

For example, in other countries, News Corporation—or News 

Corp—has introduced several interactive features, such as interactive shopping and interactive games with its satellite services. 

If, in fact, News Corp is successful in strengthening the competitive offerings of DIRECTV, that would like force EchoStar and the 

cable systems to improve their product as well, to the benefit of 

pay–TV consumers. More specifically, the parties plan to explore 

aggressively expanding DIRECTV’s local-into-local service into 

more of the 210 local television markets. This is an important potential benefit, and we will examine carefully how the parties plan 

to expand that service, and we will examine other potential benefits as well. 

Additionally, we must examine the concerns that have been 

raised about this deal. 

First and foremost, we must examine concerns that this deal will 

lead to higher prices for both cable and DBS subscribers. In short, 

the scenario that critics fear most is one in which News Corp raises 

prices to DIRECTV, then wields DIRECTV as a club to batter cable 

companies into accepting higher prices as well, all at the expense 

of consumers. 

More generally, critics of this deal have raised concerns about 

whether News Corp will use its additional leverage as an anticompetitive weapon to unfairly disadvantage other programmers 

and distributors. These are complicated issues that need to be examined very carefully. 

To their credit, the parties have proposed ways to address some 

of these concerns. Specifically, News Corp has promised that it will 

abide by the program access rules, even under circumstances when 

those rules technically would not apply to a News Corp or 

DIRECTV combination. News Corp also plans to establish an Audit 

Committee of the DIRECTV board of directors, which would ensure 

News Corp deals fairly with DIRECTV. 

We plan on exploring whether these protections are sufficient to 

ease the concerns that have been raised about this deal. 

Finally, we also look beyond the confines of this specific deal to 

its broader implications for competition in the industry. This Subcommittee has to ask whether the News Corp or DIRECTV transaction will set in motion a series of mergers between larger content 

companies and distributors. 

Such consolidation might leave the media in the hands of fewer 

and fewer vertically integrated companies, companies with enough 

3

market power to effectively exclude independent programmers and 

raise prices, both to the detriment of American consumers and the 

marketplace of ideas. 

Clearly, this is an important transaction which, if approved, 

would have a significant impact on how American consumers receive their news, their information, their sports and their entertainment. We have a lot to discuss today, and I look forward to 

hearing from our witnesses. 

Now, let me turn to Senator Kohl, the Ranking Member of this 

committee. 

Senator Kohl? 

STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM 

THE STATE OF WISCONSIN 

Senator KOHL. Thank you, Mr. Chairman. 

As you said, a little more than a year ago, we sat in this room 

to examine EchoStar’s attempt to acquire DIRECTV. That deal 

would have created a monopoly in satellite television and limited 

most consumers to only two choices for pay TV—the cable company 

and one satellite company. We opposed that merger and, wisely, 

both the Justice Department and the FCC decided to block it. 

This year, it is News Corporation’s turn to try to acquire 

DIRECTV, a deal presenting an entirely different set of issues. One 

of the world’s largest media conglomerates, with holdings ranging 

from the Fox TV network, the Fox News Channel, Fox Sports Net, 

FX cable networks, the Twentieth Century Fox movie studio, 35 

broadcast television stations, to newspapers like the New York Post 

and magazines like TV Guide, is seeking to acquire the DIRECTV 

satellite system, the Nation’s second-largest television distribution 

system. 

This combination of content holdings with worldwide distribution 

will create a media powerhouse of virtually unmatched size and 

scope. The overriding fear is that News Corp/DIRECTV will take 

advantage of their global distribution system and must-have programming to raise prices and squeeze out competition. 

Mr. Murdoch and Mr. Hartenstein will claim several benefits offered by this deal—a stronger DIRECTV, fortified by its corporate 

connection to News Corp, deploying new technologies better able to 

compete with cable TV. But, for us, the crux of the matter is what 

matters most to consumers—the deal’s likely effect on the ever-rising prices paid by consumers for pay TV and on the choice and variety of programming available. 

So, to convince us that this deal is truly in the public interest, 

Mr. Murdoch and Mr. Hartenstein must answer some difficult 

questions. Namely, will this deal create a vertically integrated 

media giant capable of raising the price of its programming and excluding other programmers from its powerful distribution network? 

And will this deal set in motion a chain of mergers as content companies and distributors find it necessary to merge to compete with 

News Corp/DIRECTV? And will this deal harm competition in the 

marketplace of ideas and further degrade the diversity of news, information and entertainment available to the American public. 

News Corp has preemptively pledged to adhere to a number of 

commitments should this deal be approved. This demonstrates, we 

4

believe, their understanding that antitrust authorities are going to 

have concerns. So we will ask you, Mr. Murdoch, to agree to several other legally binding and enforceable conditions, consistent 

with your already announced pledges. Your answers, we believe, 

will demonstrate whether you are truly serious about avoiding any 

injury to competition. 

Mr. Murdoch, we will ask you: 

Number one, to make all News Corporation programming, cable 

channels and broadcast TV stations available to DIRECTV’s competitors on the same terms as they are made available to 

DIRECTV; 

Two, to avoid any unreasonable price increases in the cost of 

NewsCorp programming; 

Three, to allow News Corp programming rivals equal access to 

DIRECTV, including with respect to channel placement and 

tiering; and, 

Number four, to work to substantially increase the number of 

markets covered by local-into-local service and broadband access 

with specific targets on specific dates. 

To date, consumers of pay TV have continued to suffer ever-increasing prices and ever-greater consolidation. We need to examine 

this merger carefully to ensure that, for a change, the promised 

benefits are truly realized. 

And so we thank our distinguished panel for being here today, 

and we look forward to having a full and complete discussion. 

Thank you, Mr. Chairman. 

Chairman DEWINE. Senator Leahy? 

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM THE STATE OF VERMONT 

Senator LEAHY. Thank you, Mr. Chairman, and I am appreciative of the fact that you and Senator Kohl are holding this hearing. 

The merger, actually, the larger issue of media consolidation is 

very important to Senators on both sides of the aisle, and I commend the two of you for following what has been the normal bipartisan way you have approached these subjects. We are aware of the 

dangers of corporate consolidation, especially in the information 

and entertainment industries, where the First Amendment, as well 

as the antitrust laws, have significant roles to play. A hearing like 

this is very timely because we try to protect both the marketplace, 

but also our freedom of speech, which I feel the First Amendment, 

the most underpinning of our whole democracy. 

Now, no one in this room could have missed the firestorm of debate and outcry that accompanied the Federal Communications 

Commission’s recent changes in the media ownership rules. I know 

those changes do not directly touch on the merger here today, but 

they are a tangible piece of the puzzle we are all trying so hard 

to solve. 

The Commerce Committee, I believe, is meeting tomorrow. We 

are going to have a hearing on media concentration next week, and 

meanwhile the FCC continues to roll back the regulations that 

were designed to preserve a diversity of programming options, a 

host of editorial choices and voices. And as soon as you could this 

5

homogenization of programming, that is not going to help viewers 

or listeners. 

I know it is true in a rural State like Vermont, where we have 

demonstrated with our town meetings that we like independence, 

and we like a diversity of views, but I suspect that is the same everywhere. Then, when you add the likelihood that increasingly 

powerful media conglomerates can raise the prices consumers pay, 

at the same time they can reduce the quality of their programming, 

both in quality, and in quantity, and in content and even technologically, the implications of unfettered media conglomeration to 

the American people and to our communities and to our society is 

very troubling. 

I think that is where we are today. I wrote to the FCC, when 

the rule changes were under consideration, there are those who 

argue that the increase in the number of media outlets has obviated the need for the rules limiting media ownership. That is not 

so. The number of media outlets has increased and ownership has 

become more concentrated. 

There are certainly fewer opinions among the American people 

than 1975, when these standards were established, but there are 

indisputably fewer true avenues for their expression to reach sizable segments of the population. To me, it is illogical that the FCC 

would exacerbate a disturbing trend which is transforming the 

marketplaces of ideas into little more than a corporate superstore. 

The proposed deal between DIRECTV and News Corp is not implicated by these rule changes, but it is an unavoidable truth the 

atmosphere of concern created by the FCC’s actions will color the 

evaluation of all media deals. Each time that the FCC eases some 

restriction, we are assured that the ‘‘public interest’’ inquiry that 

the Agency undertakes in such deals will ensure that consumers’ 

legitimate interests are protected. Well, this merger is one deal 

where we should test that repeated assertion. 

When the Nation’s largest home satellite TV service is purchased 

by one of the world’s largest media companies, it should come as 

no surprise that people are concerned about the choices consumers 

will have—something I have raised with Mr. Murdoch and others. 

Will the new entity discriminate against other distributors like 

cable companies, and especially small cable companies that serve 

a lot of rural areas. 

What about content providers or are they going to pay for News 

Corp’s own popular programming, such as shows on the Fox TV 

network, or the News Channel and sports channels? 

Then, I have a couple others, and I will do them briefly, Mr. 

Chairman, other concerns, especially important to Vermont: The 

provision of local-into-local television to smaller Designated Market 

Areas, DMAs, and the roll-out of broadband service to underserved 

communities. Local-into-local is extremely important to my State. 

We have the largest percentage or per-capita percentage, I believe, 

sadly, dish owners of any State in the country. If it is not the first, 

it is certainly the second. That is because most of our areas cannot 

get cable. We need local-into-local to find local news and weather, 

if there is a flood, there is a dangerous condition or anything else. 

Now, since July 2002, EchoStar has provided local-into-local television to its customers in Vermont. News Corporation has assured 

6

me that they want to provide local-into-local TV to Vermont, but 

they have been unable to answer the question when they will do 

this. 

The same holds true for broadband to these underserved areas. 

Again, News Corporation is hopeful they will be able to provide 

broadband to potential customers, but unable to provide any time 

frame. So these are among my concerns, Mr. Chairman. Again, I 

commend you for holding this hearing. 

Chairman DEWINE. Senator Leahy, thank you very much. We 

will move to our panel. Mr. Rupert Murdoch, of course, is the 

Chairman and CEO of the News Corporation. News Corp’s holdings 

include newspapers and magazine publishing on 3 continents, 

major motion picture and television production and distribution operation, as well as television, satellite and cable broadcast operations worldwide, and of course the Fox broadcasting channel. 

Mr. Eddy Hartenstein is the Chairman and CEO of DIRECTV. 

He has headed DIRECTV since its inception in 1990 and is currently Chairman of the Satellite Broadcast and Communications 

Association. He has testified before this Subcommittee previously, 

and we welcome him back. 

Mr. Robert Miron is the Chairman and CEO of Advance/ 

Newhouse Communications, which manages cable television systems serving over 2 million customers. He was elected to the board 

of directors of the National Cable Television Association in 1983, 

serving as an officer and member of the Executive Committee for 

a number of years. He is testifying here today on behalf of Cable 

One, Cox Communications and Insight Communications. 

Gene Kimmelman is the senior director of Consumers Union. He 

is widely respected as an advocate on a broad range of issues in 

both the areas of cable television and antitrust law. Prior to his 

tenure at Consumers Union, he served as chief counsel for this 

Subcommittee and has been a frequent witness for us in recent 

years. Gene, thank you very much for joining us once again. 

Scott Cleland is the CEO of the Precursor Group, an independent 

research/broker dealer. He has testified before numerous Congressional panels on a variety of antitrust and telecommunications 

issues, including this Subcommittee, and we welcome him back as 

well. 

We will follow a 5-minute rule. We are going to be strict about 

that today because we want to have a lot of time for questions. So 

we are going to start with Mr. Murdoch. We have your written testimony from everyone, and it is part of the record. We appreciate 

that. And if you could just give us your summary, anything else 

that you would like for us to hear. 

Mr. Murdoch, thank you. 

STATEMENT OF RUPERT MURDOCH, CHAIRMAN AND CHIEF 

EXECUTIVE, THE NEWS CORPORATION, LTD. 

Mr. MURDOCH. Thank you very much. Good afternoon, Chairman 

DeWine. 

Chairman DEWINE. And all of these mikes have to be activated. 

They are no longer the old mikes where you just spoke into them 

that we used to have in this Committee. Now, you have to push 

the button. 

7

So, Mr. Murdoch, you are first. 

Mr. MURDOCH. Good afternoon, Chairman DeWine, Senator Kohl, 

Senator Leahy. Thank you for this invitation to testify today on 

News Corporation’s proposed acquisition of a 34-percent interest in 

Hughes Electronics Corporation. This transaction will infuse 

DIRECTV with the strategic vision, expertise and resources necessary to bring increased innovation and robust competition to a 

multichannel market. The resulting public interest benefits are 

manyfold and substantial. Today, I would like to tell you specifically why this deal will be good for consumers and good for competition. 

By combining the expertise and technologies of our two companies, consumers will benefit from the better programming, more advanced technologies and services and greater diversity that we will 

provide. One of the first enhancements DIRECTV subscribers will 

enjoy is more local television stations, with the first component of 

local-into-local service as part of our BSkyB satellite venture 6 

years ago, and it remains one of our top priorities. 

News is committed to dramatically increase DIRECTV’s present 

local-into-local commitment of 100 DMAs by providing local-intolocal service in as many of the 210 DMAs as possible and to do so 

as soon as economically and technology feasible. 

In addition, News is exploring new technologies that promise to 

expand the amount of high-definition television content on 

DIRECTV, and News will work aggressively to build on the 

broadband services already provided by Hughes. 

News will also bring a wealth of new services direct to DIRECTV 

subscribes from BSkyB in the United Kingdom, including interactive news and sports and access to on-line shopping, banking, 

games, e-mail and information services, and we will infuse Hughes 

with our deep and proven commitment to equal opportunity and diversity, including more diverse programming and a variety of mentoring, executive development and internship programs. 

You can count on these enhancements because innovation and 

consumer focus is in our company’s DNA. We have a long and successful history of defying conventional wisdom and challenging 

market leaders, whether they be the ‘‘big three’’ broadcast networks, the previously dominant cable news channel or the entrenched sports establishment. 

We started as a small newspaper company and grew by providing competition and innovation in stale, near monopolistic markets. It is our firm intention to continue that tradition with 

DIRECTV. With these consumer benefits, DIRECTV will become a 

more formidable competitor to cable and thus enhance the competitive landscape of the entire multichannel industry. 

To that end, I should note that there are no horizontal or vertical 

merger concerns arising from this transaction. The transaction 

does result in a vertical integration of assets because of the association of DIRECTV’s distribution platform and News Corp’s programming interests, but this is not anticompetitive for two reasons: 

First, neither company has sufficient power in its relevant market to be able to act in an anticompetitive manner. 

Second, neither News, nor DIRECTV, has any incentive to engage in anticompetitive behavior. As a programmer, News Corp’s 

8

business model is predicated on achieving the widest possible distribution to maximizing advertising revenue and subscriber fees. 

Similarly, DIRECTV has every incentive to draw from the widest 

spectrum of attractive programming, regardless of its source. 

Nevertheless, we have agreed to a series of program access undertakings to eliminate any concerns over the competitive effects of 

this transaction. We have asked the FCC to adopt these program 

access commitments as a condition of the approval of our application. 

Viewed from another perspective, neither News, nor Hughes, is 

among the top five media companies, by expenditure, in the United 

States. As you can see in the chart attached to my testimony, News 

is sixth, with 2.8 percent of total industry expenditures, and 

Hughes is eighth, with 2.2 percent. Even combined, the companies 

would rank no higher than fifth, half the size of the market leader. 

In closing, I believe this transaction represents an exciting association between two companies, with the assets, the experience, 

and the history of innovation to ensure DIRECTV can provide better service to consumers and become an even more effective competitor. 

Thank you for your attention. I look forward to your questions. 

[The prepared statement of Mr. Murdoch appears as a submission for the record.] 

Chairman DEWINE. Mr. Hartenstein? 

STATEMENT OF EDDY W. HARTENSTEIN, CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER OF DIRECTV, INC. 

Mr. HARTENSTEIN. Chairman DeWine, Senator Kohl, Senator 

Leahy and members of the Subcommittee, who I presume will 

come, I appreciate the opportunity to tell you why the split-off of 

Hughes from General Motors and the purchase of a 34-percent interest in Hughes by News Corp. will benefit consumers throughout 

the United States, whether they are current or prospective 

DIRECTV subscribers, or even current cable subscribers. 

As a direct result of this transaction, DIRECTV will be able to 

improve its service offerings and provide a stronger, more competitive alternative to cable. Until 1994, there were no serious competitive alternatives to the dominant cable operators. With the launch 

of DIRECTV, exactly 9 years ago yesterday, consumers gained access to an alternate provider that offered more channels, and superior picture and sound quality. But it was not until November of 

1999, when Congress changed the law to allow satellite carriers to 

retransmit local broadcast channels, that DBS was able to truly 

offer a competitive alternative to cable, at least in those markets 

in which DBS operators, such as ourselves, provide local channels. 

The benefits to consumers from DBS competition to cable have 

been tremendous. In a direct response to DBS competition, cable 

operators have aggressively upgraded their services, and it is forecast that in the very near future, for the first time, the number of 

digital cable subscribers will exceed the total number of DBS subscribers in this country. 

Such developments underscore the need for DBS operators to 

keep pushing the competitive envelope to preclude satellite TV customers from being left behind. DIRECTV is already on this course. 

9

Today, we offer local channels in 61 markets and are on track 

to meet our goal of more than 100 markets, upon the successful 

launch of our eighth satellite by year end. In just 12 days, we will 

expand our high-definition television programming services to 6 

channels nationwide. 

But we simply cannot stop there. In order to continue improving 

our services, it is critical that we keep expanding DIRECTV’s programming offers and keep providing new and innovative services to 

consumers. 

At a time when DIRECTV requires capital to continue to innovate and compete, however, GM is focused on improving its core 

automotive operations and addressing the need to provide funding 

for its U.S. pension plans. DIRECTV must pursue new initiatives 

to remain competitive with cable, which will require additional 

funding. 

GM cannot provide such funding because of the resulting downward pressure on GM’s credit rating. GM has recognized that an 

independent Hughes and DIRECTV will have more flexibility to obtain the kind of financing that it—DIRECTV—needs to continue to 

grow and stay competitive into the future. 

GM identified with us News Corp. as an ideal partner for 

Hughes and DIRECTV because of its proven track record as a global direct-to-home service provider. And with News Corp’s support, 

we intend to increase the number of television markets in which 

DIRECTV provides local broadcast channels as quickly as technologically and economically feasible. Consumers residing in those 

local markets will be able to obtain satellite-delivered local news, 

weather and sports, and cable operators in those same smaller 

markets will be forced to improve their services in response. For 

those consumers, it is a win-win. 

Through our combined efforts, we intend to expand even further 

the number of high-definition channels that we offer which, in 

turn, should accelerate consumers’ adoption of high-definition reception equipment nationwide. 

Historically, News Corp. has produced and supported a wealth of 

culturally, ethnically, and linguistically diverse programming 

through its Fox film divisions, television network and broadcast 

stations. We plan to tap into News Corp’s resources to expand 

DIRECTV’s already diverse program offerings. 

In sum, the future looks bright for DIRECTV. Independence from 

GM and the investment by News Corp. will allow DIRECTV to improve and expand its services for consumers, a result that will be 

manifestly in the public interest. 

Now, I realize, Chairman, Senator, that I appeared before this 

very Subcommittee just over a year ago touting the benefits of a 

different transaction. As you know, the Justice Department and the 

FCC prevented us, as you suggested, from consummating that 

transaction. I believe that the current transaction raises none of 

the concerns that the DOJ and the FCC cited in connection with 

the prior transaction, and for that reason, I am hopeful that those 

agencies will allow us to move forward quickly with the News Corp. 

transaction so that we may continue aggressively to pursue the 

strategy we have pursued since our launch in 1994, which is to 

offer the best competitive alternative to cable possible. 

10

I appreciate the opportunity to share my views and look forward 

to your questions. 

Thank you. 

[The prepared statement of Mr. Hartenstein appears as a submission for the record.] 

Chairman DEWINE. Good. 

Mr. Miron? 

STATEMENT OF ROBERT MIRON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, ADVANCE/NEWHOUSE COMMUNICATIONS 

Mr. MIRON. Thank you, Mr. Chairman. 

In addition to our company, I am testifying today on behalf of 

Cable One, Cox Communications and Insight Communications. Together, these companies serve nearly 10 million cable television 

homes in 31 States. We thank you, Mr. Chairman, and we thank 

Senator Kohl and Senator Leahy for this opportunity. 

No doubt, News Corp’s acquisition of DIRECTV can benefit competition. However, what we find troubling is that the acquisition 

will give News Corp unique and unprecedented power and incentive to raise the cost of programming to providers, and thus consumers in all three multichannel platforms: cable, Direct and 

EchoStar. 

Our concerns are magnified by the possibility, and perhaps even 

the likelihood, that this transaction will be followed by a similar 

consolidation involving EchoStar. Today, there are vertically integrated companies that combine powerful programming assets with 

cable system ownership, but no cable company currently has the 

potential to serve more than about one-third of American homes. 

None comes to close to the geographic reach of Direct, which is 

present in every television market. None currently owns broadcast 

stations inside cable markets, while News Corp owns and operates 

35 stations within Direct’s national service area, including 9 in the 

top ten markets and 16 in the top 20. 

It is already hard enough to negotiate with the 4 companies that 

combine ownership of broadcast networks, broadcast stations and 

cable networks. Retransmission consent negotiations involve not 

just the carriage of broadcast stations, but how much cable operators will pay to the broadcast stations’ affiliated cable networks 

and how many new affiliated networks they will need to carry. 

Inevitably, cable operators face demands for carriage of these affiliated channels on their most watched tier of programming, so 

that all of our customers have no choice but to pay for them. 

Like network-affiliated broadcast stations, regional sports networks networks are must-have programming. They present much 

the same set of negotiating problems for cable operators, and News 

Corp controls, by far, the largest collection of regional sports networks. News Corp’s 18 regional sports networks cover 10 of the top 

20 television markets, and each is combined with an ownership of 

a Fox-affiliated broadcast station. 

Today’s marketplace is workable only because both EchoStar and 

Direct approached their negotiations with programmers from much 

the same point of view as cable does. Once Direct becomes a partner of the News Corp stations and networks, our negotiating position will be severely compromised. If a cable operator fails to reach 

11

carriage agreements, it will be granting its competitor de facto exclusive carriage of very desirable programming. That is not acceptable, and operators will be forced to concede. So will EchoStar. 

Prices will go up for Direct customers, EchoStar customers and 

cable customers. 

We believe the impact will be substantial nationally. It will be 

even more severe for small- and mid-size cable operators, many of 

whom operate in smaller markets and rural areas and who typically pay higher prices for programming than does Direct. 

News Corp has recognized there are problems and has proposed 

two conditions: 

First, they have proposed to comply with the FCC’s program access rules, but News Corp has exempted its broadcast stations from 

the program access commitment. The Fox stations are the big dogs 

of News Corp’s programming complex. Failure to include them in 

the program access commitment greatly reduces its value. 

Of equal importance, the program access rules allow News Corp 

to use the additional power it will gain from control of Direct to 

raise rates for cable television and EchoStar, so long as they avoid 

discriminating by also raising rates to Direct. We believe they have 

the incentive to do just that. 

Second, News Corp has proposed subjecting related-party transactions to review by an independent Audit Committee of Direct’s 

board. But Audit Committees are best-equipped to find harm to 

shareholders’ interests. Here, the harm is to the marketplace and 

consumers, not to Direct or its shareholders. Finding this harm is 

beyond the mandate and the ability of the Audit Committees and 

independent directors. 

In our view, News Corp acquisition can operate without harm to 

the public interest, but only if appropriate conditions can be constructed, in addition to those already proposed, to limit the adverse 

effects on consumer prices for DBS and cable television. 

Thank you. 

[The prepared statement of Mr. Miron appears as a submission 

for the record.] 

Chairman DEWINE. Mr. Kimmelman? 

STATEMENT OF GENE KIMMELMAN, SENIOR DIRECTOR FOR 

ADVOCACY AND PUBLIC POLICY, CONSUMERS UNION 

Mr. KIMMELMAN. Thank you, Mr. Chairman. On behalf of Consumers Union, the Print and on-line publisher of Consumer Reports magazine, I appreciate the opportunity to testify this afternoon about consumer concerns with the News Corp/DIRECTV 

merger. 

Senators DeWine, Kohl and Leahy, you will recall, in 1996, Congress passed the Telecommunications Act which launched deregulation of cable television on the theory that satellite television was 

there to compete against cable, to hold prices down. 

Well, today, prices are more than 50-percent higher than they 

were then, rising almost 3 times faster than inflation. Unfortunately this deal will not stop that. As a matter of fact, it may make 

matters worse. Prices will continue to rise. I hardly ever agree with 

the cable industry, but I believe Mr. Miron has it exactly right—

prices will just keep going up. 

12

In the context of the FCC’s recent decision to relax media ownership rules, just think of what companies, like News Corp with 

DIRECTV, will also be able to do: buy a second or a third local 

broadcast television station in communities across the country, buy 

the dominant—no, not the dominant—the monopoly newspaper, 

add more cable properties, radio stations, become the dominant 

source of local news and information in communities across the 

country. 

Tomorrow, the Senate Commerce Committee will begin taking 

action to undo the FCC’s relaxation of media ownership rules, 

bringing back a promotion of diversity and competition in local 

news markets. I hope you will join in that effort. But until the 

FCC’s decision is overturned, this transaction, and others likely to 

spring out of this, pose enormous dangers to consumers. 

How is that the case? Well, think of it on the national level. 

News Corp owns a national television network with rights of carriage on all cable systems across the country, 30 broadcast television stations, a major stake in more than 20 cable properties with 

rights to the most popular professional sports leagues and teams, 

67 professional sports teams that are the basketball, baseball and 

hockey favorites in communities across the country, in-house production studios, and newspapers here and abroad. 

Then, this company can add more properties at the local level, 

a second, a third local broadcast station, and newspapers, and on 

and on. Is this good for competition? Does this bring more diversity 

of views from different owners? On the contrary. It consolidates, at 

a dangerous level, the power of few entrepreneurs, with First 

Amendment rights to control their media properties, to define what 

news and information is in the local market, to present it as they 

see fit, and to, unfortunately, undermine the potential for competition across all technologies, the kind of competition we hope for 

with deregulation. 

I believe consumers’ interests cannot be served by this transaction unless significant conditions are imposed by the FCC, by the 

Congress, and very strict antitrust enforcement is pursued to ensure that prices do not rise for cable and satellite customers. Why 

would they rise? Just think about it. With all of those stations, all 

of those cable properties, and the very expensive television rights 

to professional sports teams, Mr. Murdoch is in the position of bundling that programming and raising the input costs for all of his 

satellite and cable competitors. His promise will do nothing to prevent prices from going up. As a matter of fact, it enables him to 

signal the market that everyone’s prices go up. Cable may not like 

it, but why not pay those higher prices, when every satellite company also pays those prices. Everyone pays more, the consumer 

pays more. That is not the kind of competition that benefits the 

marketplace. 

So we believe antitrust officials, through tough enforcement, that 

conditions placed on this deal by the FCC are absolutely critical, 

and most importantly, we believe Congress must act. It is time to 

overturn the FCC’s relaxation of media ownership. It is time to 

prevent consolidation of multiple broadcast, cable and newspaper 

properties with content distribution. And it’s time to prohibit companies like News Corp, combined with DIRECTV, and others with 

13

market power over distribution systems from preventing consumers, choice to pick the programming they want, get it at a fair 

price while ensuring that there is competition in the marketplace. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Kimmelman appears as a submission for the record.] 

Chairman DEWINE. Mr. Cleland? 

STATEMENT OF SCOTT CLELAND, CHIEF EXECUTIVE OFFICER 

OF THE PRECURSOR GROUP 

Mr. CLELAND. Mr. Chairman and Senators Kohl and Leahy, 

thank you for the honor to testify as an independent analyst who 

represents institutional investors in our business. 

My overall view, when you look at this merger, from an antitrust 

perspective, is I do not think this merger is anticompetitively going 

to hurt consumers and competitors. So while I think it does not 

necessarily raise antitrust concerns, I do think there are legitimate 

and significant First Amendment and public policy issues that are 

raised by this that are most appropriately dealt with in the FCC 

arena or in the legislative arena, but not necessarily as conditions 

to a merger. 

Now, we also, my Precursor Group, when we talk to investors 

about this, you should also know we have advised them we thought 

that this deal would get approved by the Government and that we 

thought it would create value. 

Now, what I think I can do for you today that is helpful and give 

you some insight is I think this deal is a lot less about pricing than 

it is about technology and about correcting some business-model 

weaknesses, and so I would like to run through 7 dynamics that 

are going on with News Corp that are motivating News Corp and 

DIRECTV to get together. This is not just about negotiations or 

pricing. 

The first is, is they need to make the transition from analogue 

to digital. As you all know, the over-the-air broadcast has been, the 

transition to digital has been snake-bit, and very slow, and very expensive. It is essentially all pain and no gain. 

With this transaction, they can make the leap from an analogue 

business model to a digital model. 

In one leap, they also can go from a regional platform to a national platform, the second thing. 

The third thing is they are going to be able to change their business model from an advertising-based model, which is very economically sensitive with economic cycles to a subscription-based 

model which is less-economically sensitive. It will also allow them 

to go from single channel to multichannel. The clear trend in pay 

TV is towards niche programming and having the technology that 

enables you to narrow cast and have many channels is the wave 

of the future. So this enables them to do that. 

The other thing it does is it allows them to move from a very unsecured platform to a more secure platform. You have over-there 

broadcasters up here asking for help because the technology today 

enables people to easily pirate digital content. And when you make 

a digital copy of one copy, you can make a billion of them. And so 

the technology here, and there is a need and a desire for News 

14

Corp to move its content off of an analogue, more vulnerable, easily 

pirated technology, to one where they have more control to protect 

their value. 

The other thing is that they are making a shift from a depreciating business model to an appreciating one. I mean, they are 

shifting horses kind of mid race. The over-there broadcast model is 

way past its prime. It should be put out to pasture, and essentially 

the DBS technology is more like a thoroughbred, and they are 

switching horses I think quite wisely. 

And the last thing is, and that is the subject of this discussion 

and why you all are having this very important discussion, is that 

it does shift from an unleveraged business model to a leveraged 

one, and the reality is, is when you are negotiating, and Mr. Miron 

is right, is that you do have more negotiating leverage, you are 

taken more seriously at the negotiating table when you are a content provider and when you are a distributor. So that does create 

legitimate issues that should be discussed here. 

Now, what I also would like to give you some insight is about 

what may be coming down the pike. I think Mr. Murdoch, at least 

from an investment standpoint and a business standpoint, is making the right decision. He recognizes these very serious businessmodel weaknesses, and for 6 years has tried to merge with a DBS 

provider. 

I am surprised that Disney and Viacom do not share the strategic vision, and I believe, in the future, you will probably see a 

transaction that will involve EchoStar coming at you down the 

pike. 

So, to wrap up, I do not think that this is an anticompetitive 

deal. This does not raise any more issues than, say, the Comcast/

AT&T issue did, and I would also like to point out that one of the 

interesting things, as a kind of independent observer, is that News 

Corp has consistently been what is called a ‘‘maverick’’ competitor. 

They are an insurgent. They tend to be very disruptive and very 

good for the marketplace. 

My time is up. I will conclude. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Cleland appears as a submission 

for the record.] 

Chairman DEWINE. Well, we thank you very much. You all gave 

very interesting testimony, and you all were right on time, too. I 

appreciate that. 

We have a vote that started. We are going to stop now, and we 

will be back in 12/13 minutes, probably. 

[Recess from 3:22 p.m. to 3:41 p.m.] 

Chairman DEWINE. Mr. Miron, Mr. Kimmelman, you paint kind 

of a scary picture for us, and I would like to explore that with you 

and then try to get Mr. Murdoch’s response. 

Mr. Miron, let me put it on a personal basis. I am a Cincinnati 

Reds fan, I also have DIRECTV, and so I get the Cincinnati Reds 

on Fox Sports Net. I watched them last weekend when I was home 

in my home in Cedarville, Ohio. My dad is a Cincinnati Reds fan. 

He watches them in Yellow Springs, Ohio, on cable TV. He also, 

of course, watches them on Fox Sports Net. 

15

So you are telling me that we both should be nervous about this 

deal? We are going to be paying more, are we, Mr. Kimmelman, 

Mr. Miron? 

Mr. KIMMELMAN. I would like to answer— 

Chairman DEWINE. It is bad for us as consumers, is it? 

Mr. KIMMELMAN. I think it is, Mr. Chairman. Being a born Cincinnatian, a Cincinnati Reds fan ever since I think I was 5 years 

old— 

Chairman DEWINE. You are ingratiating yourself to the Chairman, I can tell, Mr. Kimmelman, but that is okay. That is all right. 

[Laughter.] 

Mr. KIMMELMAN. It happens to be true. If I still lived in that territory, I would be extremely worried because I know that one of the 

main reasons I would want cable or I would want satellite would 

be to watch the Reds. 

Chairman DEWINE. Frankly, it is the only reason I got 

DIRECTV, and that is the truth. It certainly was not to watch—

well, we will not go into that. 

[Laughter.] 

Mr. KIMMELMAN. I would be concerned that if Mr. Miron was my 

cable operator, and I was sitting there and was being told that because the price went up he was considering not putting it on the 

air, I would have to look at DIRECTV because I want it. 

Now, like many consumers, there is a lot of frustration about the 

cost of cable going up and the inability to choose the channels that 

you want. Most consumers only watch about a dozen channels, and 

yet they get 50 or 60, and they have to keep being told that you 

should be happy to pay more because you are getting more, and 

they do not want them. 

What I am afraid, we wanted satellite to be the kind of competitor that would come in aggressively and would challenge cable 

with discounts, and they have tried, to some extent. Their equipment costs are very high. Mr. Hartenstein is absolutely right. They 

have done an admirable job, but their costs are high, and getting 

a second set hook-up and getting a high-speed service is expensive, 

and it just has not so far really cut into cable price increases, unfortunately. 

And what I am afraid of is this transaction, with a company that 

makes a lot of its money from programming, and the ability to bundle that with its over-the-air network and say, This is what we are 

charging. If you do not want it, you are not going to have it on your 

cable system. We will just put it on DIRECTV, is likely to raise 

prices for everybody. 

Chairman DEWINE. Mr. Miron, do you want to weigh in here? 

Mr. MIRON. Thank you, Mr. Chairman. I, too, was a—I remember Johnny Bench, and Joe Morgan, and was a fan. 

I think our goal is really to protect the uninterrupted flow of Fox 

product to consumers at reasonable prices. And this transaction 

could undo that, since all 3 platforms now, today, negotiate and everybody tries to get the best price, and things could change if Mr. 

Murdoch owned DIRECTV. DIRECTV could make a deal to carry 

Fox Sports at a higher rate and then negotiate with the cable company to pay the same rate. If the cable company refused to pay 

16

that rate, Direct would, in effect, have de facto exclusivity of that 

product. 

And if the cable company could not stand the pressure, Cincinnati fans would want to go subscribe to DIRECTV, they would 

give in and pay the price, and that would have a tendency the force 

the prices up. I think that is one of our serious concerns. 

Chairman DEWINE. Mr. Murdoch? Should I be afraid, Mr. 

Murdoch? Should my father be afraid of this? What is your answer 

to that? 

Mr. MURDOCH. I do not think so, Mr. Chairman. I cannot claim 

to be a fan of the Cincinnati Reds, and I am sorry. 

Chairman DEWINE. No, I hope not. I would surely hope not. I 

was waiting for that one. 

[Laughter.] 

Mr. MURDOCH. But the fact of the matter is the marketplace 

handles this. We do not—we were quoted as owning 18 or 19 regional sports networks—we, in fact, control only 10 of those. Our 

name is carried on about 19, and then we now have a small minority or they are associates of ours. 

If I could quote a, it was a private conversation with Mr. Ergen 

of EchoStar a couple of months ago, saying, Thank God for Fox because it brings all of these teams together and charges like $1 or 

$1.50 a month, depending on what tier they are on or whatever, 

if each team, otherwise each team will have its own network like 

the Yankees, and everybody paying about $8 a month. 

And I think Fox provides a very good service here. It also provides a limited sort of competition to ESPN, which is much needed, 

and I am sure Mr. Miron would agree with that. 

I do not know what they are going on about. I mean, our record 

here on pricing—first of all, let me just say this. Direct’s record, it 

launched in 1994 with 50 channels at a price of $29.95. Today, it 

sells its biggest package of 100 channels for $33.99, an increase, 

over 9 years, of $4.04, totally unlike our friends down the table 

here. 

Fox has been dealing productively with the cable industry for 

years, giving them programming they want, on mutually acceptable 

terms, and at the same time getting the value from retransmission 

consent that Congress envisioned in the 1992 Cable Act in growing 

our business. 

Retransmission consent is something quite different to program 

access. One applies to cable and satellite or we are making it apply 

to satellite, and the other has to do with broadcasting. And all we 

ask for is a level playing field. If they want to change that statute 

on retransmission, let them go ahead. It has got to apply to everybody. The effort of Mr. Miron and his associates here is simply to 

try and stop us from being competitive in any way they can. 

On this question of our relationship with cable, the smallest 

cable systems that have Fox programming on them, 300 of them, 

they just were granted retransmission consent without any conversation, without even any discussion. The major ones, perhaps 

the biggest 10 companies, have more like 90 percent of the market. 

I think 6 companies have over 80 percent of the market. 

We do, indeed, negotiate with and see what we can get. And we 

have had over the last couple of years I think 150—I have got them 

17

here—separate deals for carriage on those cable companies for 

cable channels, which we have started . Our record, wherever you 

look, has been as a price-cutter, as a competitor and as a provider 

of new choice in what we do, and we intend to continue that here. 

What really shocks me, frankly, is that Mr. Miron has allowed 

himself to be used by Cox to front for this effort here. They are privately owned entity, they are the fourth biggest cable operator in 

the country, they have programming services, they have leading, 

big TV stations—a bit more about that in a minute—large monopoly newspapers and many multi-radio station groupings in different 

cities. 

In fact, when Mr. Kimmelman was sort of fantasizing about the 

future of News Corp, I thought he was describing Cox Communications today. 

To get Fox News started, for instance, we have had to pay special payments to cable companies of over $640 million. Fifty-one million 

of that went to Cox, in addition to which they made us sign a 10-

year unbreakable, exclusive affiliation agreement for their large 

television station in San Francisco, which stops News Corp or Fox 

from really ever having an investment in television in San Francisco, a major market. 

So they are well able to, they are big boys, they are quite capable 

of looking after themselves. I am not complaining. These have been 

vigorous negotiations, but to cry poor and to try and tie us down 

is something which I think is just outrageous. 

Chairman DEWINE. Mr. Miron, do you want to respond to that? 

Mr. MIRON. I certainly cannot respond to the particulars of the 

Cox situation, but we certainly do not believe any of the issues we 

are raising will have a limiting effect on Direct’s ability to compete. 

We are simply concerned, and we have had negotiations with Fox 

over the years, and they are strained, but we have always managed 

to eventually come to an agreement. 

We have had an occasional service interruption, but we think 

that, with DIRECTV, the incentive for possible, for this to change, 

would be much greater, and so we have genuine concern that if this 

happens, it will create some, as I said before, de facto exclusive 

product programming. 

Chairman DEWINE. Mr. Kimmelman, and then my time is up, 

and we will turn to Senator Kohl. 

Mr. Kimmelman, last comment. 

Mr. KIMMELMAN. Mr. Chairman, I would just like to respond on 

this level. We certainly have problems with Cox, where it dominates the market, and we have raised concerns in the media ownership proceeding about some of that, but we did not have time, in 

the 5 minutes, to go through all of what News Corp owned here 

that is relevant to the Cincinnati Reds situation. 

Mr. Murdoch owns substantial stakes in the Dodgers— 

Mr. MURDOCH. They are for sale. 

Mr. KIMMELMAN. The Lakers— 

[Laughter.] 

Mr. KIMMELMAN. The New York Knicks, the New York Rangers, 

Dodger Stadium. I mean, he owns it all the way up the chain for 

many of the sports franchises which are must-see local programming in the community. I have now testified with him 3 times beVerDate 0ct 09 2002 14:36 Jan 14, 2004 Jkt 091211 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\91211.TXT SJUD4 PsN: CMORC
18

fore Congress in the last month. I have not once heard him that 

he can make cable rates go down through his transaction, that he 

is going to compete down prices. 

He has got a different vision of competition. It is admirable, it 

provides some benefits. I do not disagree with that, but let us be 

clear here. There is nothing about this transaction that appears 

likely to drive prices down for watching the Reds or any other 

team. 

Mr. CLELAND. Could I add to that comment, just to give an insight into the cable market? 

Chairman DEWINE. Sure. 

Mr. CLELAND. I agree, you know, cable rates have not gone down, 

but generally the DBS pay TV is not a competitive market. It is 

a Government-manufactured market. There were 4 DBS licenses 

that were granted. The market would only fund two. EchoStar and 

DIRECTV are the only ones that survived. And so the reality is we 

have a 3-person market. Generally, in a 3-provider market, you 

have competition on service, on packaging, those types of things. 

Generally, they know, it is oligopoly, they look around, and they 

say, We do not want to compete on price. It is in none of our interests, and generally it takes a fourth or a fifth or a maverick pricer. 

And as I said before, I think News Corp is an unusual one in that 

they have a history of being a maverick pricer and a maverick competitor. 

Chairman DEWINE. Senator Kohl? 

Senator KOHL. Thank you, Mr. Chairman. 

Mr. Murdoch, Mr. Hartenstein, for weeks we have heard you 

making the promises in order to convince us that your deal will, 

in fact, be beneficial to consumers. It has been our experience that 

these promises are soon forgotten, and consumers fail to see sufficiently of the benefits. 

I would like to discuss your commitments in detail, but before 

doing so, I would like to ask one question. Are you both willing to 

commit here today to be subject to an enforceable and legally binding decree either at the FCC or Justice Department that you will 

implement your promises if this merger is approved? 

Mr. MURDOCH. Yes, sir. That is a condition of the deal. We have 

written that in and offered that. 

Senator KOHL. Good. 

Mr. HARTENSTEIN. Absolutely, sir. 

Senator KOHL. Good. Mr. Murdoch, your commitments do not 

limit your ability to raise prices for your programming, as long as 

you do so on the same terms that you do to DIRECTV; is that a 

fact? 

Mr. MURDOCH. I am sorry, Senator. You mean that there has 

been a suggestion that we might raise the price of our programming that we sell to Direct and then try to let it run through. The 

fact is we do not have that power. It would not be a thing we do 

because of Direct, it would be because the programs are good, and 

we would be doing it already. We charge what the market will 

bear, frankly. 

Then, there is the other matter, if you think of anything sort of 

out-of-line that could be done, there is,in spite of all that has been 

said, a very strong majority of independent directors that are there 

19

to look after all of the shareholders. I know we have that in a parallel situation in BSkyB in Britain. It has taken us nearly 3 years 

to get a Fox channel on for 7 miserable cents per month. 

These Audit Committees do operate for all of the shareholders, 

so we are not going to put anything that is uneconomic on Direct. 

We could not get away with it. 

Senator KOHL. I do appreciate that. I was simply referring to 

your ability to do it. Not that you might or might not do it, but that 

you can do it. 

Mr. MURDOCH. I cannot. 

Senator KOHL. You cannot do it? 

Mr. MURDOCH. No, I cannot do it because it would go to the—

every transaction has to be, between any affiliated company or our 

company, has to be approved by the Audit Committee of the company, who are independent directors and distinguished businessmen in their own rights, and they are not going to be party to Direct paying anything that is unfair. 

I mean, you can say they are only worried about the shareholders, not about the public— 

Senator KOHL. I do not have a sense of sufficient comfort, with 

respect to the Audit Committee and its independence. 

Mr. MURDOCH. Well, sir, if I might just, you know, it does fully 

comply with all of the rules of the FCC, and with the New York 

Stock Exchange, NASDAQ and the new Sarbanes–Oxley Act. I cannot say more than that. 

Senator KOHL. Do you want to comment on that, Mr. 

Kimmelman? 

Mr. KIMMELMAN. Senator Kohl, I would just like to say that no 

one is suggesting News Corp is going to break the law, and no one 

is suggesting it is particularly unfair to raise your prices if you can 

get away with it. If cable has to pay a higher price for the Fox network, for FX, for Fox News, for the regional sports channel, and 

EchoStar has to pay that same higher price or a higher price, then 

it is not harming DIRECTV to pay approximately that price. 

And given that they are allowing for volume discounts in their 

own commitments, they are, with 11 million subscribers, one of to 

largest-volume providers of multichannel video service, they can 

probably justify a somewhat lower price than most cable operators 

or EchoStar would pay. 

So the terms ‘‘fairness’’ or ‘‘legality’’ are not the issue here. If the 

point is will prices go up or go down, I have not heard a word that 

indicates to me that there is any likelihood they will go down. 

Senator KOHL. Mr. Murdoch, the Audit Committee will not stop 

any deal as long as the cable pays the same price. I mean, that is 

almost self-evident. 

Mr. MURDOCH. If we went to the cable companies first and said, 

Hey, we want to double all of our charges, and if you do, we will 

make Direct pay it, you are probably quite correct, but I do not see 

that happening. 

Cable, sir, has 80 percent of the market. It is almost a de facto 

monopoly. Direct has 12 percent of the market. 

Senator KOHL. Another question, Mr. Murdoch. 

In the past, you have imposed substantial program rate increases. For example, the Washington Post reported that this year 

20

you raise the cost of your Fox Sports programming by more than 

30 percent to some cable operators. Would you agree to limit raises 

and the prices charged for your programming? For example, would 

you commit not to raise prices for your programming to no more 

than the national average rate of cable price increases over the 

past 5 years? 

Mr. MURDOCH. I would have to study that, what the figures are. 

I do not know of any 30-percent increase. The fact is that all of 

those charge different prices, and it is sort of a jumble, and there 

has been a leveling, although some people may have gone up, but 

it is nothing like ESPN which goes up 20 percent every single year. 

Who knows. We are not trying to put those prices up. We are just 

trying to keep what we pay the teams down. 

Senator KOHL. I think it is essential that the regulators craft 

some reasonable restrictions on your ability to raise programming 

prices as a condition of approving this deal. That is an opinion that 

I hold. 

Mr. MURDOCH. Well, let me take an instance where I think we 

were entitled to an increase which we will not get for 2 or 3 years 

because we have a binding legal contract. But Fox News, for instance, gets about half what CNN gets, and yet we deliver double 

the audience, and you know when those contracts come up, we will 

certainly look to correct that. I think that is a reasonable economic 

objective. It is a reasonable business approach. 

Senator KOHL. Gentlemen, while you have agreed to make your 

cable television programming available on a discriminatory basis to 

cable and satellite companies, you have not committed, Mr. 

Murdoch, you have not committed to do so with respect to your 35 

broadcast television stations. And your Fox broadcast stations are 

among the most powerful programming forces, as you know, in television. 

Fox is one of the top 4 national networks, one that has popular 

programming, like professional football, that to many viewers is essential. And yet without such a nondiscriminatory commitment, 

you could threaten to withhold the rights for EchoStar to any cable 

or any cable system to carry any Fox network affiliate in exchange 

for favorable terms, such as the carriage of other News Corp cable 

systems or programming. 

Mr. Miron, are you concerned about this scenario, and why do 

you believe it is dangerous? 

Mr. MIRON. Senator, I would love to comment on a couple of 

things that Mr. Murdoch said. 

First, he made the statement that Fox News had a greater rating 

than CNN and his price was half. We could look at it the same way 

and say that Fox News has a rating that is greater than the sports 

channels that he delivers to us, but the sports channels have a far 

greater rate, and if he wanted to equal the rating, that would be 

interesting. 

He said that he will charge what the market will bear. I think 

that really was the key statement, and I think what we believe is 

that this transaction will give him added market power, and that 

added market power, coupled with his statement that he will 

charge what the market will bear, will bring higher prices to the 

consumers. 

21

Senator KOHL. Mr. Murdoch, will you agree that you will make 

your broadcast television stations available to competing satellite 

and cable TV systems on the same terms as they are made available to DIRECTV? 

Say yes. 

[Laughter.] 

Mr. MURDOCH. Each transaction is different, but broadly speaking here, but I better look at that before I bind myself on that, sir. 

Let me just say this. It is absolutely essential, whether it is a cable 

channel or whether it is our local television station to get every 

conceivable pair of eyeballs watching you. 

You do not just go and take yourself away from 80 percent of the 

market and say we are not going to have this cable system in this 

city because we do not like Comcast or something or cannot get an 

agreement with them. That would be totally self-destructive. It is 

just not possible. The same with, I mean, why do you think I paid, 

you know, hundreds and hundreds, and probably well over a billion 

dollars to get cable channels established and get distribution for 

them? 

You know, we have bled a lot of money waiting for cable companies, big cable monopolies, to move in their own good time. And we 

even had Time Warner bar us from the essential market of New 

York because they own a rival news channel. We had to go to court, 

we had to fight, we had a huge political fight before we could final 

settle that. We are not dealing with a bunch of virgins here. 

Senator KOHL. So was your answer yes or no? 

Mr. MURDOCH. I am not prepared to make commitments about 

our broadcast license that I would not want to see a majority governed by statute, and I would want to see, if there is a change in 

that, would that—of course, we would have to agree to any statute—but how would it apply to our competitors? It is a different 

world, and if we had to do something which NBC, and CBS and 

ABC are not committed to do, I would have to just approach that 

with some caution. 

But if you said would we not charge more than what we would 

charge Direct or we would do the same, I think that is a reasonable 

request, but I just, before committing myself, I would really need 

to talk to my advisers and study it. 

Senator KOHL. Sure. 

Mr. Kimmelman? 

Mr. KIMMELMAN. Senator Kohl, in 1992, Congress, at the request 

of the broadcast industry, granted automatic carriage to broadcast 

networks and the right to bargain for retransmission consent based 

on one very simple set of facts. Cable was the dominant means by 

which the American consumer was receiving broadcast network television, and broadcast networks had to go through the cable system. They did not own another transmission system. 

I will tell you what the difference between News Corp with this 

transaction is from NBC, CBS and ABC. It owns a new transmission distribution system through DIRECTV. Those companies 

do not. It has a national network and a satellite distribution system nationwide. The logic of the granted rights by Congress does 

not, and should not, apply to News Corp if this transaction goes 

through. The facts will no longer fit the circumstances. 

22

Senator KOHL. Mr. Miron, how important is access to sports for 

cable programmers? What would happen if your customers could 

not see the local sports teams in their areas because another distributor had exclusive rights to these broadcasts? 

Mr. MIRON. It is very important to us. We would definitely lose 

subscribers if those subscribers were able to see the services on a 

DIRECTV platform. We would be at a tremendous disadvantage. 

Senator KOHL. Mr. Murdoch, let us say your sports programming 

is carried on the Fox TV network, which, as we have discussed, is 

not subject to your equal access promises, will you agree that for 

any sports programming, not now exclusive to DIRECTV, that you 

will still make it available to DIRECTV’s competitors on nondiscriminatory terms; for example, that the World Series will not 

be moved from Fox TV to DIRECTV exclusively? 

Mr. MURDOCH. Absolutely, sir. I do not guarantee we will always 

have the World Series. 

[Laughter.] 

Mr. MURDOCH. The big problem, frankly, in all of this is the future of free broadcast. It is doubtful how long broadcast networks 

can keep paying for major sports. 

Senator KOHL. Good. 

Mr. MURDOCH. But that is another issue. 

Senator KOHL. Thank you. 

Mr. MURDOCH. It all leads to higher prices in cable. If they are 

going to insist on these prices, they are going to end up on cable 

networks, whether it is ESPN or a new competitor or someone, and 

it is going to force pricing to go up. There is a problem, and it has 

been the work of the marketplace—I am not complaining—but 

there is a problem because sports is just continually getting more 

expensive. 

Chairman DEWINE. Senator Specter? 

Senator SPECTER. Thank you very much, Mr. Chairman. 

I would be surprised if my questions were not repetitious since 

I was unable to be here earlier, and this very distinguished panel 

has been testifying for the better part of an hour-and-a-half, interrupted by a vote. 

Mr. Murdoch, permit me to begin with you. How many communications entities do you presently own? 

Mr. MURDOCH. In this country, sir? 

Senator SPECTER. No, take all of the countries. 

Mr. MURDOCH. Let us start with this country, which is about 80 

percent of our business. We own the Fox Network, and the Fox 

Movie Studios, and 30-odd television stations, local television stations. We also own the New York Post and Harper Collins book 

publishers. 

In Britain, we own 2 daily newspapers and 2 Sunday newspapers. We have between 20 and 30 percent of the national market 

of newspapers there. We have a minority investment, such as we 

are talking about here, in BSkyB, a company I founded in order to 

challenge the established monopoly in Britain. 

And then in Australia, we have some local newspapers, in Sydney, in Melbourne, Brisbane, Adelaide, and we have, if you look at 

our balance sheets, there are a lot of little things, but these are the 

main properties. 

23

And then we have Star Television in Asia, which is a sort of 

long-term, start-up big—but we now are broadcasting 37 channels 

in 6 different languages across China, and India, and the Middle 

East, and Southeast Asia. They sound a lot, but they are relatively 

small business to the other things I have described. 

Senator SPECTER. An obvious concern, Mr. Murdoch, with that 

much, by way of ownership, is the issue of concentration of power, 

which is always a concern, especially with the impact of the media 

on public opinion and political affairs. Do you consider that to be 

a legitimate concern? 

Mr. MURDOCH. Not these days. I think there is such a multiplicity of voices everywhere that concentration is hardly possible. 

I mean, the most powerful, if you are talking about political influence, by far the most powerful company in this country is the New 

York Times, which services with its news just about every newspaper across the America, and is followed pretty slavishly by the 

3 networks and its choice of news, but I am not saying that is bad 

or that it cannot be competed with. 

You also have the Wall Street Journal, with a very large circulation, although it is a more specialized one. No, I think, if you look 

at the country as a whole, that is true. You can look at certain specific markets and say, hey, there is a large monopoly newspaper 

here and a large city with the number one television station and 

5 radio stations, and huge cable interests in the rest of the country, 

and you can ask questions about that. But even in that case, I am 

sure there are, you know, there are suburban newspapers, and 

there are weeklies, and there are other voices. 

Senator SPECTER. Mr. Murdoch, when you have— 

Mr. MURDOCH. I would also say, if I may, Senator, that the 

power of the press is greatly overstated. We are much flattered by 

the interest of politicians, but— 

Senator SPECTER. I do not think you will find anyone in the Senate who will agree with you about that. 

[Laughter.] 

Mr. MURDOCH. I am sure—or any politician anywhere in the 

world. But I have not noticed them change any election result yet. 

Senator SPECTER. Well, that is because you have not been a candidate. 

[Laughter.] 

Senator SPECTER. Mr. Murdoch, when you have such a premier 

product such as the National Football League and the National 

Football Conference, and you have the Fox Network, and you have 

30 TV stations, and you now seek to acquire a satellite, does that 

not put you in a position to charge pretty much what you want for 

rights to watch the National Football League? 

Speaking as a long-time fan, I think that there are many people 

who would pay whatever it took to see the Philadelphia Eagles or 

the Washington Red Skins or the San Francisco 49ers play. And 

when you have the control of the transmission of those games, and 

then you have so many of your own stations you can play them on, 

and then you go to satellite as well, do you not think it is a fair 

concern that that concentration of power, with that kind of a product, gives you inordinate leverage to establish high prices? 

24

Mr. MURDOCH. With respect, Senator Specter, no. It is the NFC, for which we pay $550 million a year, is on free, over-the-air television, and there is a real question how long we can continue to 

pay such prices. 

If you are talking about the NFL Sunday Ticket, which is on Direct and is exclusive, and which is also enormously expensive, that 

has been there for some time, and I understand there is a new contract for the next 4 or 5 years, but that has nothing to do with me, 

and it does not give us any power. 

I better leave Mr. Hartenstein out of that because he is going to 

have to make it pay out. 

Senator SPECTER. Mr. Kimmelman, what, in the last series of answers by Mr. Murdoch, do you agree with, if anything— 

Mr. KIMMELMAN. Well, I agree when he said— 

Senator SPECTER. —opposed to what you disagree with, but I 

thought we would start with a presumptively narrower arrange 

what you agree with. 

Mr. KIMMELMAN. Yes, it is a short list. I definitely agree with 

Mr. Murdoch that there is a danger of concentration in local markets where you have monopoly newspapers buying the number one 

broadcast station, and I believe he is a bit understating dangers of 

concentration throughout markets. 

And it is quite clear to me that, for example, in the Philadelphia 

market, being able to watch the Eagles is very important to consumers. And if my recollection is correct, when a cable company refused to sell its rights to sports programming, one of the satellite 

providers in the market found that only about half as many consumers were buying satellite service as in comparable communities 

in the country, reflecting the fact that they could not sell because 

consumers would not go where they did not get their local teams. 

So it is an enormously powerful tool. It is market power at the 

programming level. I do not disagree with Mr. Murdoch that there 

is market power in the cable distribution system as well, but we 

are not serving consumers’ interests when the 2 of them are fighting over monopoly rents, over overpricing, as opposed to competitive pricing, and that is the problem with this transaction. 

It is shifting more power into the hands of one programmer who, 

with a new distribution system, has too much power in the marketplace to raise prices, not just to satellite customers, but to the other 

satellite provider and every cable operator because they are dependent on his product as a critical input to serve their customers. 

Senator SPECTER. What is the additional factor, illustratively, of 

saying the New York Yankees, having their own cable, when you 

have the Atlanta Braves with their own cable outlet, and you have 

that in other forms, so that people want to watch the New York 

Yankees, and if you can only get it on cable, it drives up the prices? 

This Antitrust Subcommittee I have been on for many years, and 

I commend the Chairman for these hearings, and we try to keep 

up with these issues, but they are vast, and they are complicated, 

and they overlap in so many, many directions. And one of the directions involves franchise shifts, and that involves enormous expense 

on stadiums. 

In my State, Pennsylvania, we have seen 4 new stadiums built 

at a total cost in excess of right at a billion dollars, and those staVerDate 0ct 09 2002 14:36 Jan 14, 2004 Jkt 091211 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\91211.TXT SJUD4 PsN: CMORC
25

dium costs occur as a direct result of blackmail because those 

teams are going to go somewhere else or extortion. 

I have a hard time being a Senator, but I have a pretty good 

command of blackmail and extortion from my prior practice. But 

how does the factor of—and that is a little different—but Mr. 

Murdoch would have a somewhat similar power with the NFL and 

people who want to see it—how does the factor of, say, the Yankees 

and their cable stations tie into this overall issue? 

Mr. KIMMELMAN. Senator Specter, I think you are hitting a very 

important point because it would be appropriate for this Subcommittee to look at the leagues and their antitrust immunity 

under the Sports Broadcasting Act or under common law. That has 

been a problem that fuels this. 

I would just point out that Mr. Murdoch is a team owner—the 

Dodgers, the Knicks, the Rangers, the Kings, the Lakers, Dodger 

Stadium—so he is part of that problem on that side as well. This 

is very, and I am not quibbling with his statement that he pays 

a lot, whether it is for his players or for his broadcast network, the 

right to televise games, but that is just institutionalizing overpayments, where the market itself knows there is not competitive pricing. 

So there is lot of surgery that needs to be done, I would suggest, 

by the Congress to look at all levels of monopolistic practices, from 

the Leagues all through the sports broadcasting rights to the cable 

and satellite distribution systems. 

Mr. CLELAND. Can I add a comment, Senator? Sports are an extraordinary example in the sense that they are like a personal monopoly. If you are a Yankees fan, you do not care to watch anybody 

else. You want to watch the Yankees. There is one choice. If you 

are Cincinnati Reds fan, you want to watch the Reds. And so it is 

our own personal loyalty to sports teams that creates a monopoly 

in that price. 

Sports prices have gone up probably more than almost any other 

product in the economy over a long period of time. We remember 

when boxing used to be free on ABC Sports on Saturday afternoons. The reason it moved was because the business—they could 

earn a tremendous amount more money by doing it pay-per-view. 

And that is the trend, with Fox NFL, the NFL Ticket, that is the 

trend. They are realizing if they can constrain supply, they can leverage the personal monopoly of sports. 

Mr. HARTENSTEIN. Senator, if I may, we have been on both sides 

of this. As you well know, in your State Comcast, to be very specific, has an ownership interest in both the Sixers and the Flyers 

and, through a loophole in the program access provisions, does not 

provide the Flyers or Sixers games to satellite. As Mr. Kimmelman 

indicated, we do not do as well in those territories where they are 

because we do not have the ability to deliver to our customers there 

those games. 

On the flip side, in New York, with the Yankees being carried 

onthe Yes Network, we made a promise to our customers long ago 

when we started, almost 9 years ago, that we would provide the regional sports network for their popular teams as part of our basic 

package to every customer. We bit the bullet. We did it. Cable, or 

26

at least some cable in the New York area for the Yankees, did not 

and it has been very well publicized. 

In neither case has this been the end of the world, and in all 

cases, as with NFL Sunday Ticket for us, at the end of the day it 

comes to consumers and what they are willing to pay. 

Yes, we have Sunday Ticket, but the percentage of our total subscriber base that takes NFL Sunday Ticket is in the low teens. And 

it is just the market is a very efficient device in terms of prohibiting us or, for that matter, cable from over charging and gouging. 

We have gone from zero to almost 12 million subscribers in 8 

years. To some that is a damn good start. It is a textbook case in, 

I think, business school and I think Mr. Ergen at EchoStar would 

have a similar experience. 

But at the end of the day, we are still only 12 percent of the 

homes in America, and we have a long way to go. I think this is 

all about competition, and what we are trying to do, and I think 

with News Corp. coming on board as a 34-percent owner, emphasis 

on 34 percent, is to be the innovator and extend the innovation and 

competitive alternative that we started. That is all that we are 

looking for, and I think that is what a lot of the folks are objecting 

about. They do not like competition. 

Mr. MIRON. Senator, if I might, I think in respect to your original 

question about Philadelphia, at one point I think Mr. Murdoch was 

quoted as saying that sports were his, quote, ‘‘battering ram.’’ And 

I think what we would be concerned about in Philadelphia is the 

retransmission consent that he might use in granting that, the 

ability to raise the price so that the Philadelphia Eagles would not 

be carried on a cable system and only on DIRECTV. And that 

would be part of what would—and if they were carried on cable, 

it would be because cable had to pay a higher price for that particular channel. 

Senator SPECTER. Thank you. 

Chairman DEWINE. Senator Leahy? 

Mr. MURDOCH. Can I just add something to that? I am sorry, 

Senator. May I? 

Chairman DEWINE. Mr. Murdoch, then Senator Leahy. 

Mr. MURDOCH. I beg your pardon. I just want to— 

Senator LEAHY. Senator Specter has asked a good question. I just 

did not hear your answer. 

Chairman DEWINE. Go ahead. 

Mr. MURDOCH. I wanted to say, reaffirm that the sports, which 

is always free bidding and free market, is carried on free television. 

We are totally 100 percent dependent on what advertising we get, 

and we are not about to give away 80 percent of the audience because we would lose 80 percent of our advertising, if not all of it. 

So it is just not a realistic thought to take it off cable. 

Chairman DEWINE. Senator Leahy? 

Senator LEAHY. I suppose I should be—have all my concerns and 

doubts put aside in this hearing, I don’t. I saw the specter of nothing but nationally produced or geographically homogenized programming on satellite, indeed on cable, and I always worry about 

claims made. I voted against the—I was one of the few that voted 

against the Telecommunications Act. I really did not believe the 

claims that we would all see our cable bills come down. I think 

27

mine has doubled or tripled since then. I really did not believe the 

claim that we would see much better, clearer TV. Most stations, if 

they are local, I can get a far better picture off rabbit ears than 

I can off my cable. 

I was concerned about what many have talked about, that they 

will just use this—you go to like the so-called HDTV, just use all 

this extra spectrum to run ads and other businesses, not to give a 

better picture to the person buying it. But that is a different issue 

than here. 

Now, though we hear reassuring pronouncements—and, again, I 

am concerned, and let me speak to a bit of a bias here. About a 

third of America lives in what could be called rural America. That 

is still a whole lot of people. That is about 90 million people. And 

in most of those areas of rural America, you do not get cable. You 

only get satellite, if you are going to get it, or over the air—you 

have to get it over the air somehow. A very important part of 

America. You cannot write off many million Americans, and you 

certainly, just as back in the days of Franklin Roosevelt, when a 

decision was made to bring electricity to rural America and telephones to rural America, to bring them into part of the country. 

Now, I do not say that just coming from Vermont. We are basically very much a high-tech State. But every single Senator represents some large rural areas. In fact, I know from my childhood 

and visiting my uncle in Ohio, Senator DeWine has parts of rural 

Ohio which go way beyond what we think of as rural just because 

of the distances involved. 

So that brings me to this. DIRECTV and News Corporation made 

public pronouncements about the hope of providing service outside 

large urban areas. I have not heard concrete plans to do so. To pick 

a State at random, say Vermont, what is the impediment to providing local-into-local TV today in Vermont, for example? 

I mention this because EchoStar has done so. As I understand, 

when EchoStar did this, they courted a significant number of customers away from DIRECTV because you could get local programming. I would hope that that would provide an economic incentive 

for DIRECTV to do the same, but does anybody want to tell me, 

are they going to compete? 

Mr. HARTENSTEIN. Sure, Senator. We have our eighth satellite, 

as I indicated, going up at the end of this year. It happens to be, 

while being our eighth satellite, our second spot beam satellite. We 

have not yet done the final testing to determine exactly how many 

additional markets and which ones in particular that we can cover. 

We know that we can take our total number of markets up to at 

least 100, and that will give us coverage of about 85 percent of the 

country. 

We will, at the end of this year, which is not that much further 

away, have the ability to add some more markets, and we hope to 

be able to oblige at least the Burlington DMA, which is near about, 

if I understand or remember correctly, the 100th DMA. And so 

we— 

Senator LEAHY. I think it is in the high 90’s. 

Mr. HARTENSTEIN. Yes, it is. So, we will look to that and see if 

it is technically feasible where exactly our spot beams fall. We 

come from different orbit locations. 

28

Senator LEAHY. So, in other words, you have no—you are not 

saying there is—you are not making any commitment. 

Mr. HARTENSTEIN. I cannot commit— 

Senator LEAHY. Except to look at it. 

Mr. HARTENSTEIN. I cannot commit specifically to Burlington 

today, but we are certainly looking at that and all the other markets that we might be able to cover. Our goal is to get to as many 

of the homes in America as we possibly can. 

To answer your earlier question from your opening statement 

with respect to broadband, we today have a broadband service. It 

is called DIRECWAY, which works everywhere, including in all 

parts of Vermont, where by satellite—and it is a Hughes product—

we can deliver high-speed broadband Internet via satellite, and we 

have a— 

Senator LEAHY. Is that two-way? 

Mr. HARTENSTEIN. Yes, it is two-way. Yes, sir. 

Senator LEAHY. And is that comparable in price to cable 

broadband? 

Mr. HARTENSTEIN. It is a little bit pricey right this minute. It 

will typically cost you about $60 a month to get comparable service. 

But we have another service that should be launched by the middle 

of 2004. It is called SPACEWAY, also satellite-based but much 

higher performance, which will give much higher performance than 

even DSL or some cable modem service can today for a very similar 

price to what we are able to offer today. 

Senator LEAHY. Am I right that in the service you have now, if 

there is suddenly a large demand, it slows down? 

Mr. HARTENSTEIN. No, that is not correct. 

Senator LEAHY. That is not correct. Okay. 

Mr. HARTENSTEIN. I think you are thinking of cable or DSL 

there. 

Senator LEAHY. I am familiar with cable and DSL, but I had 

heard that that happens on satellite. But not so? 

Mr. HARTENSTEIN. Not the way we allocate the transponder capacity. No, sir. 

Mr. CLELAND. Senator, could I add a comment on that with the 

rural satellite? It is going to be probably the only provider in some 

very rural spaces, but satellite will always be inferior as an architecture to a telephone or cable infrastructure because when you 

have to send signals on the IP protocol, you have to send up to the 

satellite and get answers. And so what it creates is a quarter-ofa-second delay because of the distance and bouncing back. 

Now, for most services on high-speed, you would not notice the 

difference. For telephony you would. It would be like a bad walkietalkie. If you were trying to do interactive gaming, like an F–15 

fight with somebody across the country, it would be like flying a 

Sopwith Camel. So that is what the delay would be like. 

Senator LEAHY. I am not very good at either the Sopwith Camel 

or the F–15, so I might be okay. However, my youngest son and 

daughter-in-law, who can fly such things, might feel differently. 

We have been told that there would not be discrimination 

against unaffiliated programming services on DIRECTV. What 

about affiliated programming? 

29

Mr. MURDOCH. Senator, we have made that quite clear. Any affiliated program would be treated exactly the same as a Fox program and a News Corp program. The misunderstanding here is, I 

think, that we amended our submission on this some weeks ago. 

Senator LEAHY. Am I correct that that is if the FCC maintains 

its program access rules? Would you do that even if they did away 

with those program access rules? 

Mr. MURDOCH. No, sir. We only ask for a level playing field. If 

they want to exempt all the cable companies and Time Warner 

with all their things, we would want the same treatment. All we 

ask for is the same treatment as cable gets. 

Senator LEAHY. So if they did that, if they did away with program access rules, then as far as you are concerned, it is Nellie bar 

the door, just go ahead, and then you make the decision, whatever 

commitments are in place now would not be there—I am not trying 

to put words in your mouth. 

Mr. MURDOCH. Our commitment is simply to extend the existing 

law from cable to satellite. The only person who will be exempt 

from it will be Mr. Ergen at EchoStar. We are happy with that. 

Senator LEAHY. But if the FCC changes the program access 

rules, you would not feel that any commitment you made now 

stands? Is that right? 

Mr. MURDOCH. I expect they would change it for everybody. 

Mr. HARTENSTEIN. For the record, Senator, the program access 

rules were put in place in the 1992 Telecommunications Act as Mr. 

Kimmelman indicated, and the original sunset for those provisions 

was in 2002. They were extended for 5 years, so they are automatically now valid until 2007. And by our submission at the FCC, the 

joint News Corp./DIRECTV submission, we have voluntarily subjected ourselves to those exact terms. 

Senator LEAHY. You subject yourself to FCC’s non-discrimination 

principles by contract, correct? 

Mr. HARTENSTEIN. Yes. 

Senator LEAHY. How would you feel if that commitment was put 

into a consent decree by the Justice Department? Do you want to 

think that one over? 

Mr. HARTENSTEIN. Well, if the program access rules were, again, 

applied to all MVPDs, vertically integrated ones, we would abide 

by those. Clearly, if there is a specific exclusion so that only 

DIRECTV would be subjected to those, I think that would be clearly an unlevel playing field against our MVPD competitors. 

Senator LEAHY. But you are trying to get the Justice Department 

to go along with you. Still obviously there are certain give-andtakes when that is being done. You do not think this would be a 

fair one. 

Mr. HARTENSTEIN. I think it would be— 

Senator LEAHY. If they just put into a consent decree you have 

got to do this, even if the FCC later on changes their rules, which 

they seem willy-nilly able to do. 

Mr. HARTENSTEIN. I think that would be unfair, yes. 

Senator LEAHY. Mr. Murdoch, do you agree? 

Mr. MURDOCH. I agree with Mr. Hartenstein, sir. We are simply 

seeking here the right to compete with cable on a level playing 

field, and all the submissions we have heard today are to try and 

30

tie my hands behind my back from doing that. And if you want 

competition and service and price competition and everything to 

the public, I have to have the same privileges they have. 

Senator LEAHY. I have never really pictured you as somebody 

with their hands tied behind their back with all— 

Mr. MURDOCH. Well, that is the attempt that is going on here. 

Senator LEAHY. It has usually been unsuccessful. 

Does anybody want to add anything to this? 

Mr. KIMMELMAN. Senator Leahy, I would just like to point out 

that I don’t know where this level playing field is. Mr. Murdoch 

has a television network with Congressionally granted rights to get 

on every cable system in the country automatically. I know of no 

cable company that has such rights. I certainly believe cable companies that own their own programming can prefer their own programming and guarantee carriage on their systems. But there is 

something unique about a broadcast television network that Congress recognized and gave special privileges to. 

So I am a bit baffled that Mr. Murdoch and Mr. Hartenstein are 

not willing to promise more, and particularly not promise more 

that covers not just cable programming but the broadcast programming to be offered on the same non-discrimination terms. It strikes 

me that they are unique by having a broadcast network and have 

through DIRECTV now a separate nationwide distribution system. 

No one else in the country is like that. 

Senator LEAHY. Does anybody want to add to that? 

Mr. MIRON. I was just going to say I support what Mr. 

Kimmelman said. The difference between—is definitely that News 

Corp would have a distribution, national distribution platform 

which no cable company has. The most a cable company has is a 

regional platform, and the greatest is to one-third of the country, 

but most of us much smaller. 

Senator LEAHY. Well, Mr. Chairman, I will add my other questions for the record, and I appreciate we went over time on this. 

Thank you. I really enjoyed your football questions. We do not have 

those problems up in my little State. 

Senator SPECTER. [Presiding.] Stick around. There are some more 

coming, Senator Leahy. Thank you very much to Senator Leahy. 

Senator DeWine has stepped out for a few moments and has 

asked me to proceed at this time. 

Focusing on the sports aspect, which may be the key point where 

so much or perhaps all of the other programming can be substituted for, but there is, as pointed out, only one New York Yankees, only one Philadelphia Eagles, only one Los Angeles Dodgers, 

when the Judiciary Committee has looked over these problems over 

the years, when we have had franchise transfers going back to the 

early 1980’s and we had some very hotly contested hearings in this 

room when the Raiders moved to Los Angeles and Commissioner 

Rozelle was here with Al Davis and had about as lively a debate 

at that table as you can fathom. That was in 1982, and we have 

had the hearings periodically since. And there is always a question 

as to what Congress can do. And Congress probably does best when 

Congress does nothing. We have a lot of experience at that. 

31

We do have tremendous leverage on the antitrust exemption, 

which baseball enjoys as a result of judicial decisions and which 

football enjoys as a result of legislation. 

So if we were to insist on some other approach by Major League 

Baseball or by the NFL conditioned on losing their antitrust exemption, if they want to be like any other business—and we know 

baseball is a business at this point because the Supreme Court said 

so, long after the Holmes opinion in 1922, and we know football is 

a business, so that we could use that as leverage to structure some 

different arrangement. But then the question arises as to what arrangement would we suggest. 

Mr. Cleland, starting with you, right to left, what would you say 

Congress ought to do to deal with this issue? 

Mr. CLELAND. Try and offer a creative solution. I think the big 

problem from a Congressional standpoint is when consumers that 

might not way to pay for sports have to pay for sports. So probably 

one of the things is that as sports has migrated to pay-per-view, 

that has been a good development. But to the extent that sports 

costs are driving up, you know, cable programming and other programming, because they are bundled, you know, the technology 

nowadays allows you to select what programs you want. And you 

may have to buy 50, but you may only want three or five. 

So I think, you know, any exploration of a la carte pricing from 

a Congressional standpoint would be something I imagine your constituents would like. 

Senator SPECTER. Mr. Kimmelman? 

Mr. KIMMELMAN. If I could echo that, we certainly would support 

moving towards a la carte pricing for consumers, pick the channels 

you want at a fair price, and I would suggest carrying it back into 

the wholesale level, each— 

Senator SPECTER. At a fair price? How do you determine that? 

Mr. KIMMELMAN. Well, if you can pick the channel you want at 

the retail level and you carry it back to the wholesale level and 

prohibit the bundling of channels so that they are sold to the distributor on an individual basis, you will get the closest you can to 

a market mechanism for people getting to choose what they want. 

We have a problem with market prices here because we have 

cable monopolies; we have at best two satellite providers. It is an 

oligopoly structure. It is tricky. 

I would urge you to review any antitrust immunity, first of all, 

for the leagues. I think it is problematic. 

Senator SPECTER. Review it? 

Mr. KIMMELMAN. And eliminate it. 

Senator SPECTER. We have reviewed it again and again and 

again. But what do we put in its place? You talk about market. 

How do you get market for the New York Yankees television 

games, cable television games? 

Mr. KIMMELMAN. If the Yankees are allowed to bargain on their 

own, you will see a very different result in the marketplace than 

if they are required to bargain through a league in a national package. You may need to look to special rules related to ownership of 

teams and ownership of distribution media. I think that creates 

problems. 

32

As Mr. Cleland points out, this is a very tough set of issues because it has some inherent monopolistic aspects based on people’s 

taste and also based on the fact that we have very few distribution 

mechanisms for televised sports, which is what people want. Certainly eliminating antitrust immunity would be a start, and requiring the sale of programming to all distributors on a per-channel 

basis and then to all consumers on a per-channel basis. People can 

bundle anything in addition to that. 

Senator SPECTER. When you say eliminating the antitrust exemptions would be a start, would you recommend that we do that? 

Mr. KIMMELMAN. Yes, sir, I do. 

Senator SPECTER. What would happen? What would the consequence be? Would we not have a situation of chaos? 

Mr. KIMMELMAN. We might have—we would have—we might 

have more chaos than we have today because leagues would not be 

able to organize how they maximize their profits for each of their 

teams. But you would certainly have the consumer able to pick and 

choose the teams he and she want to watch and see much more 

readily than you have today. You would not necessarily have certainty that teams would not move around. That is definitely a problem. 

Senator SPECTER. Would we have teams? If you don’t have the 

revenue-sharing of the NFL, would we have teams? 

Mr. KIMMELMAN. We might have a lot more, Senator Specter. We 

might end up with more teams serving more communities, as you 

have in soccer in the U.K. Where we do not restrict exactly how 

the minor league is structured for baseball and major league is 

structured, you might have a much more open marketplace. 

Senator SPECTER. Just let the market govern, no antitrust exemptions. 

What do you think, Mr. Miron? 

Mr. MIRON. Senator, I am not knowledgeable enough in this particular area to really try to— 

Senator SPECTER. Well, don’t let that stop you, Mr. Miron. 

[Laughter.] 

Senator SPECTER. Nobody else is either. 

Mr. MIRON. I can only look at how legislation would affect us, 

and at this point I would not want to see Congress enact legislation 

that would force tiering or a la carte or any of that sort of stuff 

on a cable operator and a programmer. I would rather have us be 

able to enter into free market negotiations and continue to enter 

into negotiations, you know, with Fox Sports. 

What I fear is that with the DIRECTV purchase, it would upset 

that free market negotiation. I think we have seen and we have 

seen now in New York a negotiation going on and some start towards the moving of cable programming, cable sports programming 

to a tier or something of that nature, and that to me—if we could 

have that free market negotiation and it could continue, maybe 

that has a way of helping it. 

But I would be very cautious to ask the Congress to delve into 

that specific area because I think it would be very difficult. 

Senator SPECTER. Mr. Hartenstein? 

Mr. HARTENSTEIN. Senator Specter, I cannot speak for any given 

league, the NFL or any others, as to what their druthers are. But 

33

I know in general programmers themselves do not like the notion 

of a la carte pricing or even tiering. It is terribly suppressive to the 

innovators who want to come up with new programming services. 

If everything went a la carte, the Animal Planets of the world, 

some of the new services just, I think, would be impossible to come 

into existence. 

Senator SPECTER. Would that be bad? 

Mr. HARTENSTEIN. Pardon? 

Senator SPECTER. Would that be so bad? 

Mr. HARTENSTEIN. Well, if you look at where people’s choices 

were 10 years ago in terms of how many channels could a multichannel programming provider provide, read cable 10 years ago, 

the answer was typically 30 or 50 or so channels. And while, yes, 

everybody only in their household professes to watch three channels, I tell you, if you get 50 households in a row, they will be a 

different three or nine or however many they watch in every one 

of those 50. 

It is all about choice, sir, and I think that the cable industry has 

enough trouble answering the phone as it is. You know, trying to 

deal with customers wanting to change their a la carte lineup, I do 

not think they could handle it. 

I think, quite frankly—that was a cheap shot, I know, Mr. Miron. 

Senator SPECTER. How does DIRECTV do on answering the 

phone? 

Mr. HARTENSTEIN. We do very well, sir. We are number one in 

both the ACSI and the J.D. Power independent customer satisfaction surveys. It is 2 years running now on ACSI. 

Senator SPECTER. How does that compare to EchoStar? 

Mr. HARTENSTEIN. EchoStar has come in number two, and the 

rest of the MVPD providers, cable, comes sort of a distant third. 

Senator SPECTER. Judging by my cable company, you would not 

have to be very good to be better than they are. 

[Laughter.] 

Mr. HARTENSTEIN. Thank you. 

Senator SPECTER. I say that very seriously. 

Mr. Murdoch? 

Mr. MURDOCH. Senator, I would just like to start by saying that 

I am pleased that Mr. Miron has just agreed to free market negotiations, which is just what we do. 

On the bigger question of antitrust and the leagues, first of all, 

there seems to be some fiction that all these teams make a lot of 

money. I don’t know any teams that make any money, particularly 

in baseball. 

There is also the little fiction of Mr. Kimmelman’s I might correct. We do not own Madison Square Garden or the Knicks or the 

Nets or whoever the hell are there. We do have a minority position 

in that, which we will be very happy if you ordered Cable Vision 

to give their money back. But we certainly have no influence at all 

on that. 

The real point, we have just had this, as a matter of interest, in 

Europe and in Britain. We supported the start of a premier league 

in soccer and made it very popular, and it was a tremendous help 

to Sky Television, although it was very expensive. But it led to 

34

huge improvement in football in Britain, and they share the money 

around. 

Over the last year, the European Commission, Mr. Monti, the 

Commissioner for Competition Policy, has been driving at them to 

try and break it up and say this is monopolistic, it is a cartel, and 

so on. And he has finally backed away and given up on that and 

simply said they have to sell different packages of games. 

But if you let each team negotiate for themselves, you are going 

to end up with half as many teams, not many more teams, as Mr. 

Kimmelman stated. The big teams will get all the money, and the 

little teams will get no money. And I think it would be very bad 

for the public and for the games. It would be better if Mr. 

Tagliabue of the NFL was here to articulate this rather than me. 

But I think the NFL has done a tremendous service to the public 

by controlling and sharing the money and sharing the talent equally. 

It is a tricky problem. I know that sounds bad public policy, but 

it happens to work well in this case. 

Senator SPECTER. Well, it certainly is a tricky problem, and it is 

extraordinarily difficult to try to find some answer, and Congress 

has shied away from it because of the lack of predictability of what 

would happen if we removed the antitrust exemptions. So we stumble along in what we are doing, and we really leave it up to the 

leagues. And I think baseball and football are getting into deeper 

trouble because you go to see the Philadelphia Eagles and you do 

not know any of the players. You go to the see the Philadelphia 

Phillies and you do not know the players. Free agency has now put 

all the players on different teams. We had a lot of Philadelphia Eagles in the Super Bowl last year, but they were playing for Tampa 

or the other team. 

Well, thank you very much, gentlemen. It has been very interesting and informative. Thank you. 

Thank you, Mr. Chairman. 

Chairman DEWINE. [Presiding.] Well, let me thank our witnesses 

for their testimony here today. As I stated at the outset, this transaction has important implications for pay-television consumers and 

for the media industry generally. And today’s witnesses I think 

have really provided a great deal of information and insight into 

the issue, and we appreciate it. 

Vertical transactions like the one before us today often raise very 

complicated competition policy issues, and I think it is fair to say 

that this deal certainly does that. 

Senator Kohl and I continue to believe that the issues raised 

here today need to be thoroughly examined by the Justice Department and the FCC. And for that reason, we have sent a letter 

today to those agencies requesting that they review this deal carefully. 

I would like to stress, however, that the Antitrust Subcommittee 

has not reached any conclusions about whether or not the deal 

should be approved. Similarly, we have not reached any conclusions as to the final form of any additional conditions which may 

be necessary. 

35

We will issue, therefore, follow-up questions to today’s witnesses, 

and we look forward to working with them as we continue to evaluate these important issues. 

So, again, let me thank all of you very much for your patience 

and for your very good testimony. Thank you. 

[Whereupon, at 4:52 p.m., the Subcommittee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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